TMI Blog1996 (7) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 80-I of the Act was worked out @ 25% of the total profits as per the following details :--- SMS-III Rs. 11,89,988 SMS-V Rs. 56,88,321 ------------------------- Rs. 68,78,309 Oxygen Plant Rs. 5,40,301 ------------------------- Rs. 74,18,610 -------------------------- The Assessing Officer allowed deduction under section 80-I in respect of oxygen plant and there is no controversy regarding that before us. For the reasons mentioned in the assessment order for the assessment year 1991-92 in the assessee's own case and following order of ld. CIT(A), Central, for that year, the Assessing Officer maintained that in view of the provisions of sections 80-I(8) and 80-I(9), which were applicable to the facts of the case, the profits in these two units as shown by the assessee could not be accepted. He accordingly computed the profits as per Annexure-7 to the assessment order at Rs. 46.09 lakhs in respect of SMS-III unit and Rs. 215.78 lakhs in respect of SMS-V unit. Besides, depreciation, manufacturing expenses, personnel expenses, administrative expenses, financial expenses and selling expenses were re-allocated and in this way as per Annexure-7, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute the profits on the basis indicated in section 80-I(9) but the said section was not applicable at all inasmuch as there was no other person involved in the present case. It was pointed out that the connection in the present case was between one unit of the assessee and another unit of the assessee and not between the assessee and some other person. It was also submitted that for such a connection between one unit of the assessee and other unit of the same assessee, the relevant section was section 80-I(8) and not section 80-I(9). It was argued that in case section 80-I(9) was held to be applicable to a situation where there was a transaction between one unit of the assessee and another unit of the same assessee, then section 80-I(8) would be rendered absurd and superfluous and it was well-settled principle of law that absurdity or superfluity could not be attributed to Legislature. It was also pointed out that the facts in the case of Upper India Steel Mfg. Engg. Co. Ltd. were distinguishable. It was pointed out that in that case, no separate books of accounts had been maintained in respect of each unit whereas in the case of the assessee, separate account books had been maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity or otherwise of section 80-I(9), it would be pertinent to reproduce the said sub-section, insofar as it is applicable to the assessee's case having the business of an industrial undertaking, as under : " (9) Where it appears to the Assessing Officer that owing to the close connection between the assessee carrying on the business of the industrial undertaking and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in the business of the industrial undertaking, the Assessing Officer shall, in computing the profits and gains of the industrial undertaking...for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. " From the above, it is clear that before section 80-I(9) is applied, the transaction has to be between the assessee being an industrial undertaking and some other person. There has also to be some transaction between the assessee and the other person. The assessee and the other person may have a close connection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, in the case of Upper India Steel Mfg. Engg. Co. Ltd., a particular formula was being applied for allocating the common expenses whereas in the case of the assessee in the earlier years from 1989-90 to 1991-92, the Tribunal had clearly held that section 80-I(8) could not be applied and overhead expenses could not be reallocated. We are, therefore, of the confirmed opinion that the Tribunal's decision dated 19-4-1994 in the case of Upper India Steel Mfg. Engg. Co. Ltd. does not, in any way, militate against the case of the present assessee. 8. Taking a consistent view of the matter in the assessee's own case (previously known as M/s. Punjab Concast Steels Ltd.), we hold that the assessee was entitled to deduction under section 80-I as claimed by it and the revenue authorities were not right in rejecting the claim of the assessee. These grounds, therefore, succeed. 9. Ground No. 5 is against the sustenance of disallowance of Rs. 2,80,000 being the alleged interest paid to bank on account of advances/loans given to its employees. The facts show that the assessee had paid huge amounts of interest to the banks on the loans borrowed by it. The assessee-company had made advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest-free advances were made to such employees to enable them to subscribe to the shares of the assessee-company. It was submitted that there was nothing illegal about the advance. It was emphasised that no such advance was made to the managing director or directors of the assessee-company and that the interest-free advances had been made only to the employees of the assessee-company which was permitted by law. 11. The ld. representative further submitted that the assessee had been lending interest-free loans to its employees for various reasons and on various occasions and that this was not for the first time that an interest-free loan had been advanced to the employees. It was pointed out that this was a benefit given to the employees and the advance was made as a long standing practice of the assessee-company which had ripened into a condition of service for its employees. Shri Gogna relied on the Supreme Court decision in Dalmia Cement (Bharat) Ltd. v. Their Workmen AIR 1967 SC 209, for the proposition that where there had been a continued and uninterrupted practice for the encashment of privilege leave for certain specified purposes, such practice had ripened into a cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees to purchase the shares but if the assessee paid interest on such loans and did not charge any interest from the employees, then it was diversion of amounts for non-business purposes and hence interest could legitimately be disallowed which had been disallowed by the revenue authorities in the present case. 15. We have carefully considered the submissions of both the sides. The assessee-company has advanced interest-free loans only to its employees and not to any of its directors. Such an advance is neither in violation of the Companies Act nor of the guidelines issued by the Ministry of Finance. In fact, the law encourages such advances to be made to the employees. In the first instance, the revenue authorities have not been able to establish a direct nexus between the amounts borrowed by the assessee-company on which interest was paid by it and the amounts advanced by the assessee-company to its employees free of interest. The assessee-company had reserves and surplus to the extent of Rs. 14.77 crores from which the amounts could be said to have been advanced interest-free to the employees. Assuming though not admitting that the advances had been made from out of fun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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